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DOL Says It Won’t Enforce Fiduciary Rule’s Arbitration Ban

The Labor Department says it won't enforce a provision of the fiduciary rule’s arbitration ban.

The stance, published August 30 in Field Assistance Bulletin 2017-03, was first revealed in a brief filed in the U.S. Court of Appeals for the 5th Circuit in Chamber of Commerce v. Acosta, where the Labor Department took the position that the Arbitration Limitation should be vacated insofar as it applies to arbitration clauses because it cannot be harmonized with the Federal Arbitration Act and AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).

That stance has been cited in a separate suit brought by Thrivent Financial for Lutherans in the U.S. District Court for the District of Minnesota, where the plaintiffs have claimed that the requirements of the Best Interest Contract Exemption (BICE) would, “by its terms and in its effect, require Thrivent either to cease conducting certain business that is beneficial to its Members or to abandon its longstanding commitment to resolving Member disputes amicably and through private, one-on-one mediation and arbitration.”

The provision in question was intended to deny favorable treatment to financial institutions that require clients to waive their rights to participate in class action litigation.

Having taken that stance, FAB 2017-03 instructs field agents that the Department of Labor “will not pursue a claim against any fiduciary based on failure to satisfy the BIC Exemption or the Principal Transactions Exemption, or treat any fiduciary as being in violation of either of these exemptions, if the sole failure of the fiduciary to comply with either the BIC Exemption or the Principal Transactions Exemption, is a failure to comply with the Arbitration Limitation in Section II(f)(2) and/or Section II(g)(5) of the exemptions.”

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The FAB says that this policy will continue to apply as long as the exemptions include the Arbitration Limitation now found in Section II(f)(2) and/or Section II(g)(5), and that, to the extent that circumstances give rise to the need for other relief, including prohibited transaction relief, EBSA will consider taking such additional steps as necessary.